Creditors clamping down as economic conditions tighten: Jirsch Sutherland

“We’re seeing enforcement activity broaden significantly. It’s no longer concentrated in one area; the ATO, banks and other creditor providers are all active, creating a much tighter environment for businesses under pressure,” he said.

Spring said that this ramp-up had been partially driven by rising costs of doing business, as inputs such as labour, borrowing costs and utility bills became more expensive.

“From a macro level, obviously, it’s not getting easier for businesses.”

“Whether it be via labour markets being tight, there’s just pressure on input costs all the way around. There’s material costs going up, there’s utility costs going up, there’s rental costs going up, there’s labor costs going up all the time. 

“That’s a normal part of business, where prices fluctuate, but when they all fluctuate at the same time in one direction, then the business has to try and pass that cost on, or it’s not going to make a profit.”

The ATO's business debt disclosure initiative had also sped up the debt recovery process, he said. Under the program, the ATO disclosed firms’ tax debt information to credit reporting bureaus, unless they were already engaged with the Tax Office to manage their debts. 

Over 35,000 businesses were subject to the regime, Spring noted. This growing tax debt transparency was acting as a catalyst for other creditors, in some cases spurring earlier debt enforcement action, he said.

“Greater visibility around tax debt means issues can surface more quickly, not just for the ATO but for other creditors as well,” he said. 

“This can shorten the timeframe for businesses to respond and, in some cases, prompt earlier enforcement action from multiple parties.”

“We’re continuing to see viable businesses use SBR to stabilise and restructure.”

“At the same time, voluntary administrations have lifted significantly – now sitting at roughly double pre-2023 levels – reinforcing that more businesses are reaching the point where formal intervention is required.”

He added that broader economic conditions were also prompting creditors to act more quickly to recover their debts.

“With borrowing costs still elevated and margins under pressure, creditors are becoming less willing to wait and more likely to act.”

“Measures such as Payday Super will remove some of the timing flexibility businesses have historically relied on. For those already under strain, that has the potential to bring forward financial distress rather than defer it.”